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1. OBJECTIVES The course goal is to help you distinguish situations where there is a correct answer from those where judgment is required. The challenge is to acquire the knowledge necessary to respond to a series of questions you will ask yourself later in your career as either a preparer or user of accounting information. To reach the course goal we will follow an approach which focuses on five milestones: 1. Record Keeping and Reportinghow do you record an event, how does it impact accounting reports, and how do you subsequently aggregate information from this event and others to create these reports? As a user of accounting reports (investor, creditor, employee, or other stakeholder), given the accounting numbers management reported for an economic event and their accounting choices, you will want to know how the numbers were recorded and how they affect accounting reports. 2. Computation: how do you compute the number reported in challenge 1? As a user, knowing the accounting procedures management used to produce the numbers recorded in challenge 1 and the information that was needed to execute them, such as management's assumptions about the related business activity, how would you compute them yourself? 3. Judgment: how do you choose an accounting procedure and exercise related judgment concerning measurement, recognition, and disclosure? As a user, who has access to less information than preparers about this business activity and about preparers' personal incentives to report or misrepresent it, how do you judge the usefulness of numbers reported in challenge 2 to your decision? 4. Usage: how do you first learn as much as possible about the decisions that will be influenced by the reported numbers and the consequences of these decisions on yourself, your reporting entity, and users? As a user, how can the reported numbers help you make a more informed decision? 5. Search: how to locate the information needed to meet objectives 1 through 4? 3. PROGRAMME PART I INCOME AND ASSET VALUE MEASUREMENT SYSTEMS 1.1. Accounting and reporting on a cash flow basis 1.2. Accounting and reporting on an accrual basis: Develop a mental model for classifying types of accounting accruals and understand how accruals affect the financial statements. 1.4. Income and Asset Value Measurement 1.5. Accounting for inflation.. MRV Page 2 of 5
PART II FINANCIAL REPORTING: THE INTERNATIONAL CONTEXT OF ACCOUNTING 2.1. Regulatory framework: Overview of the international accounting standard setting process and bodies 2. 2. Evolution of International standards: International differences in accounting standards 2.3. Conceptual framework: IASC Framework for the presentation and preparation of financial statements. PART III PUBLISHED ACCOUNTS OF COMPANIES 3.1. Elements of an Annual Report and Financial Ratios - become familiar with the main parts of an annual report: a. CEO's letter, b. description of business activity, c. management discussion and analysis, d. audit report, e. financial statements, f. description of accounting procedures, g. footnotes. 3.2. The accounting cycle - the basic bookkeeping model that illustrates how record keeping impacts the financials: a. recording events during the accounting period, b. end-of-period adjustments, c. closing entries, d. financial statement preparation. 3.3. Understand the purposes of the four financial statements: a. balance sheet, b. income statement, c. statement of cash flows, and d. statement of owners' equity. 3.3. Distinction between recognition and disclosure of information. 3.5. Most commonly-used financial ratios. PART IV Revenue Recognition, Accounts Receivable and Inventories 4.1. Discuss the criteria for revenue recognition under accrual accounting 4.2. Introduce the different types of adjustments related to Accounts Receivable 4.3. The three alternative methods used to calculate the Adjustments for Doubtful Accounts: direct method, percentage of sales, and aging. 4.4. Inventory valuation and inventory control: a. Product Costing (managerial accounting). b. Cost-flows from inventory to Cost of Goods Sold. c. Valuation adjustments 4.5. Reporting issues. MRV Page 3 of 5
PART V - Property, Plant, and Equipment, Long-lived Assets, Construction Contracts and Intangible Assets 5.1. Some applications of the matching principle: a. Allocating historical costs to future revenues. b. Accruing expenses related to outstanding obligations 5.2. The concept of "Depreciation" and the assumptions used to calculate depreciation. 5.3. Accounting for property, plant, and equipment 5.4. The accounting issue for construction contracts 5.5. Accounting for associates and joint ventures 5.5. Accounting treatment of intangible assets and goodwill 5.6 The context on the usage and judgment challenges: the business, the individuals making decisions, and the regulatory environment. PART VI - Current Liabilities, Contingencies and Equity 6.1 Term Debt 6.1.1. The nature and reporting requirement of short-term liabilities. 6.1.2. The trade-off between reliability and relevance of accounting numbers in the accounting for contingencies. 6.1.3. The time value of money and the mechanics of present value calculations. 6.1.4. Introduce banking terms and concepts. 6.2. Long-Term Debt 6.2.1. Long-term debt including par value, stated versus effective interest rate, discounts, premiums, and mortgages. 6.2.2. How long-term debt affects the financial statements over time. 6.3. Leases 6.3.1. The rationale for leasing, and the distinction between operating and capital leases. 6.3.2. The Income Statement and Balance Sheet differences between operating and capital leases. (focus on accounting from the lessee's perspective). 6.4. Stockholders' Equity 6.4.1. The components of stockholders' equity. 6.4.2. The effects various transactions have on stockholders' equity. 6.4.3. Ratios based on stockholders' equity: earnings per share. PART VI I GROUP ACCOUNTING 7.1. Accounting for groups at the date of acquisition 7.2. Preparation of consolidated statements of financial position after the date of acquisition 7.3. Preparation of consolidated statements of comprehensive income and consolidated statements of changes in equity. MRV Page 4 of 5
3. READING MATERIALS Financial Accounting: An International Introduction (2001), David Alexander and Christopher Nobes. Pearson Education, 1 st edition, ISBN: 0273646788. Comparative International Accounting, Cristopher Nobes, Robert B Parker. Prentice Hall (2008), 10 th edition, ISBN: 0273714767. Financial Accounting and Reporting, Barry Elliot and Jamie Elliot. Prentice Hall (2008), 13 th edition, ISBN: 0273730045. Financial Accounting: A New Perspective. Paul Solomon. McGraw-Hill. ISBN: 0071217185. International Financial Reporting Standards, International Accounting Standards Board, as adopted by the European Union. 4. COURSE ASSESSMENT The course evaluation consists in a final sitting written exam. To complete successfully the course students must have a minimum exam mark of 10 (out of 20). Option continuous evaluation process - Alternatively, students may choose to be assessed through a sitting written mid-term course assignment or test and a final sitting exam. The final mark is computed as follows: 70% final exam and 30% mid-term test or course assignment. Mid-term assignment must reach a minimum mark of 8 (out of 20). Students that do not approve through the above conditions can pass a second sitting written exam at the end of the semester. Any student with a final mark above 16 out of 20 must defend their mark through oral examination. 5. LECTURER Maria do Rosário Veiga rosario.veiga@iscte.pt MRV Page 5 of 5